Interim Report of KONE Corporation for January-June 2016

KONE Corporation, stock exchange release, July 19, 2016 at 12.30 p.m. EEST

Interim Report of KONE Corporation for January-June 2016

April-June 2016: Strong execution and profitable sales growth

• In April-June 2016, orders received totaled EUR 2,068 (4-6/2015: 2,193) million. Orders received declined by 5.7% at historical exchange rates and by 1.9% at comparable exchange rates.
• Net sales grew by 2.8% to EUR 2,273 (2,210) million. At comparable exchange rates the growth was 6.0%.
• Operating income (EBIT) was EUR 348.6 (325.2) million or 15.3% (14.7%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 393.3 (426.0) million.
• KONE slightly upgrades its operating income (EBIT) outlook for 2016. In 2016, KONE's net sales is estimated to grow by 2-6% at comparable exchange rates as compared to 2015. The operating income (EBIT) is expected to be in the range of EUR 1,250-1,330 million, assuming that translation exchange rates would remain at approximately the average level of January-June 2016. KONE's previous outlook for its operating income (EBIT) was EUR 1,220-1,320 million, assuming that translation exchange rates would have remained at approximately the average level of January-March 2016.

January-June 2016: Solid operating performance

• In January-June 2016, orders received totaled EUR 4,010 (1-6/2015: 4,247) million. Orders received declined by 5.6% at historical exchange rates and by 3.1% at comparable exchange rates. The order book stood at EUR 8,764 (June 30, 2015: 8,627 million) at the end of June 2016.
• Net sales grew by 3.1% to EUR 4,021 (3,901) million. At comparable exchange rates the growth was 5.2%.
• Operating income was EUR 570.0 (537.1) million or 14.2% (13.8%) of net sales.
• Cash flow from operations (before financing items and taxes) was EUR 699.0 (638.2) million.

             
Key figures

Henrik Ehrnrooth, President and CEO, in conjunction with the review:

"Our strong execution and profitable sales growth continued during the second quarter. Orders grew in all other regions apart from China, where they declined significantly. Orders received declined by 5.7% at historical and 1.9% at comparable rates, but they were at a high level of EUR 2,068 million. Sales was EUR 2,273 million with a solid growth rate of 2.8% at historical and 6.0% at comparable rates. The operating income developed very positively in the quarter, reaching EUR 348.6 million. The relative operating income improved to 15.3% of net sales. Our cash flow remained strong at EUR 393.3 million.

I am particularly pleased to see solid service sales as well as significant growth in our modernization orders in the quarter and in the first half of the year. This is a good basis for continuing our work towards the target of further accelerating the growth of our service businesses. In a highly competitive new equipment market environment, we have been focusing on attractive growth opportunities. Our overall performance demonstrates that our competitiveness is strong and that we can deliver results also in a more challenging environment. I would like to thank everyone at KONE for their contribution and commitment across our businesses.

During the second quarter, global market trends continued to be varied. In China, the new equipment market volumes declined less than in the first quarter, but pricing pressure in the market intensified. In this environment, we developed roughly in line with the overall market during the quarter. The market in the rest of the Asia-Pacific region grew. In Europe, the most positive development was seen in Central and North Europe and the markets in South Europe continued to stabilize. In North America, new equipment and service markets showed a sustained good level of activity. Our progress in all of these regions was good.

With two quarters now behind us, we have slightly upgraded our operating income outlook. We continue to expect sales growth of 2-6% at comparable rates in 2016. Operating income is now expected to be in the range of EUR 1,250-1,330 million, assuming that translation exchange rates would remain at the average level of January-June 2016."

Operating environment in April-June 2016

In the second quarter of 2016, the global new equipment market volumes weakened as compared to the previous year, following a market decline in China. In the Europe, Middle East and Africa (EMEA) region as well as in North America, both new equipment and modernization demand continued to see growth. Also the maintenance market continued to grow globally, with the strongest rate of growth in the Asia-Pacific region and more moderate development in Europe and North America.

Operating environment in January-June 2016

During January-June 2016, the new equipment market volumes in Asia-Pacific weakened driven by a decline in the significant China market. In the EMEA region, market volumes saw clear growth in Central and North Europe compared to the previous year. In South Europe, the new equipment market was rather stable and the Middle East saw a marginally positive trend despite uncertainty in the region. In North America, the new equipment market continued to grow slightly from a high level. The large European modernization market grew clearly in Central and North Europe and showed signs of stabilization in South Europe. In North America, the modernization market continued to grow slightly, and also the markets in the Asia-Pacific region continued to present increasing modernization opportunities. The maintenance markets continued to grow globally, with the fastest rate of growth seen in the Asia-Pacific region. The pricing environment remained challenging in many markets, with the new equipment market in China seeing the most intense competition in pricing.

Market outlook 2016

In new equipment, the market in China is expected to decline by 5-10% in units ordered and also the price competition to continue intense. In the rest of Asia-Pacific and in North America, the market is expected to see some growth. Also the market in Europe, Middle East and Africa region is expected to grow slightly with growth in Central and North Europe and a more stable development in South Europe and the Middle East.

The modernization market is expected to grow slightly in Europe, to continue to grow in North America, and to develop strongly in Asia-Pacific.

Maintenance markets are expected to see the strongest growth rate in Asia-Pacific, but to develop rather well also in other regions.

Business outlook 2016

KONE slightly upgrades its operating income (EBIT) outlook for 2016.

KONE's net sales is estimated to grow by 2-6% at comparable exchange rates as compared to 2015.

The operating income (EBIT) is expected to be in the range of EUR 1,250-1,330 million, assuming that translation exchange rates would remain at approximately the average level of January-June 2016.

Previous operating income (EBIT) outlook

The operating income (EBIT) is expected to be in the range of EUR 1,220-1,320 million, assuming that translation exchange rates would remain at approximately the average level of January-March 2016.

Press and analyst meetings

A meeting for the press, conducted in Finnish, will be held on Tuesday, July 19, 2016 at 2:15 p.m. EEST.

A meeting for analysts, conducted in English, will begin at 3:45 p.m. EEST. The meeting will be available as a live webcast on www.kone.com. The meeting participants can also join a telephone conference that will be arranged in conjunction with the meeting. The telephone conference details can be found below.

Both meetings will take place in the KONE Building, located at Keilasatama 3, Espoo, Finland.

Telephone conference numbers:

US callers: +1 646 254 3366  
UK callers: +44 (0)20 3427 1901
Finnish callers: +358 (0)9 6937 9590  
Participant code: KONE

An on-demand version of the webcast will be available on www.kone.com later the same day.

For further information, please contact:
Katri Saarenheimo, Director, Investor Relations, tel. +358 204 75 4705

Sender:

KONE Corporation

Henrik Ehrnrooth
President and CEO

Max Alfthan
Executive Vice President, Marketing and Communications

KONE as a company

At KONE, our mission is to improve the flow of urban life. As a global leader in the elevator and escalator industry, KONE provides elevators, escalators and automatic building doors, as well as solutions for maintenance and modernization to add value to buildings throughout their life cycle. Through more effective People Flow®, we make people's journeys safe, convenient and reliable, in taller, smarter buildings. In 2015, KONE had annual net sales of EUR 8.6 billion, and at the end of the year close to 50,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.

www.kone.com